Wednesday, May 20, 2009

Gentle Cough, Saudi Arabian production

Over at The Oil Drum (TOD) Ace has just posted an update to his Forecast of World Oil Production and it is the usual well argued and documented review of one possible future. He concludes that world crude oil (including condensate and from the oil sands) peaked in 2008, at 73.8 mbd. He believes that by 2011 OPEC will no longer be able to offset non-OPEC declines, and that we will be in an irreversible decline. (There is a note that ethanol is now contributing around 1.5 mbd to world liquid fuel production.) He explains the basis for the production estimates and is discouraging of the Arctic being able to produce anything new and significant in time to be meaningful. He sees oil sand production as being restricted to 2.5 mbd (following David Hughes arguments). He does not see Brazil being able to export much as it develops its off-shore fields, and while Iraq has a lot of potential (perhaps as much as 8 mbd) but again tit will be produced oo late for near-term impact.

The post has been followed by several lengthy comments including one on spare OPEC capacity particularly dealing with Saudi spare capacity, also here that I would like to disagree with a little. And since the comment may also apply to other OPEC countries, it may relate to the coming production of oil over the next five years, in a way that makes the future a little less grim than Tony sees it. (He made a more comprehensive review back in March which covers much of this information.

My quibbles with these comments relate to the reality of managing production from a multitude of wells, in the presence of considerable water cut. The volumes that are involved are considerable, and Aramco must pump large volumes of water to sustain existing production. So when Ace says:
First, a little history about what Saudi Arabia claims and what has happened. The chart below shows Saudi Arabia's production history. Oil prices tripled from 2005 to mid 2008. Surely Saudi Arabia's production would have increased given its huge capacity. Instead Saudi Arabia's crude production decreased from 2005 to 2008.
I begin to demur.

I talk with folk who are producing oil increasingly often, one was in my office yesterday, and commented that he had shut in a number of wells because of the declining market. We were discussing EOR and I will suspect it is going to take a bit more than a year, and perhaps two, before even an extremely simple version of one of our systems gets fielded at one of his wells. There is sufficient inertia in the business (read paperwork and regulation) that makes it a lot easier to stop production than to increase it. But, and more to the point, all the time the price of oil was rising in the 2005 to 2008 timeframe, the folks I talk to were extremely cautious – they’d been there before, and were not surprised when the drop came.

Aramco, more than most, design their fields, gathering pipes, treatment facilities that separate the oil/water/gas, and delivery lines to the refineries and other facilities for known production rates. To increase production over that design requires a vast array of capital, and very significant amounts of time. Units are sized for given quantities of oil, certain water cut percentages, and going outside those values, particularly upwards, is not just a case of turning a tap. Thus, when a conclusion is drawn that because Aramco did not increase production, or dropped it, that they are reserve restricted, is reading more into the situation than is justified.

The primary example of this is, I believe, the Manifa field originally scheduled to be now nearly ready for production. To produce the 1 mbd or thereabouts available from the field requires, because of the nature of the crude, that new refineries be built, and these have been planned for. However, instead of there being an increased pressure, and accelerated schedule to bring the refineries into production, they have been delayed and postponed, and now are anticipated for 2013. On the other hand, to meet increasing gas demand, the facility has expanded to include gas from the Arabiyah and Hasbah fields which have been fast-tracked to meet increased domestic demand.

Thus as we look at Saudi production, they did not get over exuberant over the increased price of crude, having been there before, and having been caught that time in the undertow when the prices fell away in an overproducing world. So this time they did not rush to increase production, did not make large investments to immediately change levels, but rather invested more for the long term. Those fields that will come on line take time to develop, and are sized to a certain level of production. If anything they will slip those levels to reduce production, but because of the technical difficulties, will likely not be able to increase levels beyond the design capacity. But remember that reducing production keeps money in the bank for them, and has been shown to keep global prices higher, so they sell less for more. Why try and reverse that model?

And it may be that one or two of the other countries in OPEC may try and follow along. But they are more likely to need the money and have less control of the operation that has been achieved, over the years, in Saudi Arabia.

Now that doesn’t mean that I disagree with most of what Ace wrote, I also suspect that when the economies begin to accelerate upwards again they will find an oil cap below that which we saw last year. Others are already grasping the same point, and it may, eventually, reach the ears of those who are currently busy increasing car mileage by legislation, when, within the time frame they plot, market forces and the rising price of gas, are likely to do their work for them.

P.S. I also disagree with the anticipated 2.5 mbd cap for the oil sands, it may be more likely reach double that, but that is a subject for a different post.

1 comment:

  1. Thanks, Heading Out. That assertion by Tony stuck out for me, too. Another factor keeping down production for that period (2005-2008) might have been the desire not to damage the fields.